An overview of innovation policy
Shifting the Dial: 5 year Productivity Review — Supporting Paper No.15, Canberra, August 2017
ã Commonwealth of Australia 2017
ISBN 978-1-74037-640-2 (PDF)
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The Productivity CommissionThe Productivity Commission is the Australian Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the longterm interest of the Australian community.
The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole.
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Contents
Abbreviations ii
Key Points iv
An overview of innovation policy 1
1 The Australian government’s innovation policy 2
2 Supporting policies 14
3 Data 19
4 Some relevant statistics 20
5 Selected studies 22
6 Some key policy issues 24
A Research institutions 27
B Innovation programmes 33
References 37
Abbreviations
Abbreviations
ABN / Australian Business NumberABS / Australian Bureau of Statistics
ARC / Australian Research Council
ATO / Australian Taxation Office
BLADE / Business Longitudinal Analysis Data Environment
CRC / Cooperative Research Centre
CSIRO / Commonwealth Scientific and Industrial Research Organisation
DIIS / Department of Industry, Innovation and Science
DST / Defence Science and Technology
ICT / Information and communication technology
INSEAD / Institut Européen d’Administration des Affaires
IP / Intellectual property
ISA / Innovation and Science Australia
NHMRC / National Health and Medical Research Council
NSW / New South Wales
NT / Northern Territory
OECD / Organisation for Economic Cooperation and Development
PCT / Patent Cooperation Treaty
Qld / Queensland
R&D / Research and development
RDC / Research and Development Corporation
SA / South Australia
SME / Small and mediumsized enterprises
SP / Supporting paper
STEM / Science, technology, engineering and mathematics
Tas / Tasmania
UK / United Kingdom
US / United States
Vic / Victoria
WA / Western Australia
WIPO / World Intellectual Property Organization
Key points
· In 2015, the Australian Government brought many of its separate, but related, policies together under the National Innovation and Science Agenda. They established a new body, Innovation and Science Australia, to develop and implement policy to promote innovation.
· Beyond investing in basic research and skills, the jury is out on whether there are specific government policies that can successfully promote innovation and whether this would be material to Australian economic growth. The Commission has previously argued that the government should conduct rigorous evaluations of all government innovation programmes to verify that they are achieving ‘additionality’ and are cost effective (PC2007).
· The Department of Industry, Innovation and Science (DIIS) is building a data framework to, among other things, support the evaluation of their programmes, drawing on data from the ATO, the ABS and what they collect from the firms receiving support. This framework (BLADE), which is managed by the ABS and is progressively being made available to researchers beyond DIIS, is an important first step in providing better evaluation of industry programmes. This work should inform this question of what governments should and should not do to stimulate innovation in the next Productivity Review, in 5 yearstime.
· In the meantime, there are several areas where the government should take action.
– A recent review of the Australian economy by the OECD (2017) recommended consolidating the 150 Commonwealth programmes. Many of these schemes are small in terms of the funds involved — with 74 collectively accounting for under 2per cent of Australian Government expenditure of just under $10billion in 201516 (with an average expenditure of $2.6million). While trials are to be applauded, they are not a valid test if they fail simply due to insufficient scale.
– A third of the almost $10 billion public investment in innovationrelated activities (including basic research funding) is through the R&D tax incentive. The Ferris, Finkel and Fraser Review (2016) made six recommendations which largely sought to: limit the scope for creative accounting by greater clarity and transparency; reward collaborative research efforts; and better focus support to innovative investments by limiting the cash refund and imposing an intensity threshold while expanding the expenditure threshold to retain the incentive for large firms to increase R&D in Australia.
· The lack of connection between the research and private sector is an issue. Yet trying to make academics become entrepreneurs is rarely successful. Critical mass — for networks of contacts, to attract skilled workers, and to pool risk for investors — is well recognised as important for building sustainable innovative ecosystems. Governments at all levels have responded with investments in maker spaces, incubators, and accelerators that may bear fruit, but it is also possible that lack of scale will undermine these efforts. Addressing this is difficult, but greater cooperation between governments to build areas of expertise in specific locations would assist entrepreneurs and firms in building critical mass.
SP 12 – AN OVERVIEW OF INNOVATION POLICY / 5
An overview of innovation policy
Innovation and science are seen as critical for maintaining Australia’s high standard of living, ensuring its ongoing international competitiveness, creating jobs and ensuring future economic prosperity. Central to this is the creation and adoption of knowledge, ideas, products, processes and ways of doing business. This requires a culture that values and is open to new ideas and ways of doing things, takes risks and learns from mistakes made.
Technological progress has long been an important driver of economic growth in developed economies such as Australia. This rate of progress has quickened in recent years as technological advances open up new opportunities and lowers the cost of exploiting them. This progress gradually changes the nature of economic activity and society. Such changes challenge the viability of established ways of doing things and existing business models.
Innovation policy seeks to foster, nurture and develop knowledge, and to have these ideas put into practice by business in new and better products, processes and ways of doing business. Governments seek to encourage innovation by investing in the generation of knowledge, supporting basic and applied research and development (R&D), building the skills of the workforce, providing a sound regulatory environment (Supporting Paper13 (SP13)), and promoting a culture that values innovation.
The ways in which Australian governments have supported innovation are many and varied. At the basic research and skill development end of the spectrum, governments support research by academics mainly at universities. With a more applied focus, but still on research that may not have immediate commercial applications, governmentowned institutions, such as the Commonwealth Scientific and Industrial Research Organisation (CSIRO), undertake the research directly. Governments also offer a range of tax concessions, grants and other inducements to the private sector to boost their R&D, and in some cases assist them through the commercialisation process. This assistance is provided on the basis that, without assistance, markets would undertake insufficient R&D, as they would not take into account the external benefits arising to others from their research.
Australian governments have also invested in maker spaces, incubators, and accelerators with the hope of attracting entrepreneurs and building critical mass to attract skills and investors. Together this loose grouping of a wide range of different policies are governments’ attempts to support Australian firms to innovate.
The Australian Government brought many of their separate, but related, policies together in 2015 under the National Innovation and Science Agenda (Commonwealth of Australia2015).
This paper seeks to provide an overview of Australian Government innovation policy. It commences by outlining the key Australian Government policies that target innovation (section1). It then outlines some other Australian Government policies that, while pursuing other objectives, also support innovation (section2). The paper then provides an overview of a data framework being developed that could support future analysis of innovation policy in Australia (section3). It then provides some selected statistics on innovation in Australia (section4). The paper draws some policyrelevant findings from some recent reviews of innovation policy in Australia (section5). It concludes by raising some issues for Australian innovation policy (section6).
1 The Australian Government’s innovation policy
Government expenditure
The Australian Government spent $10.1billion on research and other measures to support innovation in 201516 (figure1).[1] The full list of Australian Government expenditure on innovation, science and R&D in this year is detailed in appendixB.
Onethird of this expenditure was directed towards the business sector, primarily through tax measures aimed at encouraging R&D. Government research activities accounted for onefifth of this investment, with the remainder targeting research (by universities, rural research and development corporations (rural RDCs), cooperative research centres (CRCs) and through grants).
Expenditure across each of these sectors includes a mix of institutional and grant funding.
There were 150 separate Australian Government funded innovation programmes or activities in the 201516 budget (DIIS2016). Expenditure on these initiatives totalled $10.1billion. This is a conservative estimate of all initiatives and funding, as it excludes related Australian Government programmes and those of state and territory governments.
Figure 1 Australian Government investment in R&D, 201516 //
Source: DIIS(2016).
Research organisations
Government research organisations
The Australian Government spent $1.8billion on the research activities of 16government agencies in 201516 (tableA.1 at the end of this paper).
Of these, the two main Australian Government research organisations are:
· the CSIRO ($750million)
· the Defence Science Technology Group ($464million).
Funding of the remaining government research organisations totalled $621million.
The higher education sector
The Australian Government spent $3.5billion on research and innovation undertaken by the higher education sector in 201516 (figure1). The main government funding covers:
· performance based block funding to fund university research ($2billion)
· Australian Research Council (ARC) grants ($816million)
· National Health and Medical Research Council (NHMRC) ($653million)
· other Higher Education R&D ($43million) (figure2).
Research performance block funding grants were provided to 42higher education providers in 2016 (tableA.2 at the end of this paper), with the single largest recipient being The University of Melbourne with $185million.
In addition to research funding, Australian universities received an additional $19.2billion in 2015 to fund their teaching and other activities (SP7).
Figure 2 Australian university research funding by source, 201516 //
Source: DIIS(2016).
Multisector
Some R&D is undertaken by more than one sector. For example, NHMRC grants fund research undertaken by universities, medical research institutes, government bodies and hospitals. Other research involves joint publicprivate sector partnerships.
The Australian government spent $1.4billion on multisectoral research in 201516 (figure1). The main multisectoral research funding agencies are:
· rural RDCs ($323million)
· NHMRC (excluding university) ($193million)
· CRCs ($141million).
Funding of the remaining innovation undertaken by multisector organisations totalled $695million and primarily covered R&D in the areas of energy, environment and health.
Rural RDCs and rural R&D
Rural RDCs invest in R&D and innovation to improve the profitability, productivity, competitiveness and longterm sustainability of Australia’s primary industries. The Rural RDCs act as investment managers, custodians of public and private funds, and service providers to industry and government. There were 15Rural RDCs in Australia in 201516 (tableA.3 at the end of this paper). These organisations are primarily funded through statutory R&D levies (or charges) on the commercial production of various commodities, with matching funding from the Australian Government.
Five Rural RDCs are statutory corporations or authorities that are owned by the Australian Government and established under legislation:
· the Australian Grape and Wine Authority
· the Cotton Research and Development Corporation
· the Fisheries Research and Development Corporation
· the Grains Research and Development Corporation
· the Rural Industries Research and Development Corporation.
The remaining 10Rural RDCs are industryowned, notforprofit companies established under Australia’s corporations law and declared through regulation as the service providers to industry for specific activities. These Rural RDCs cover: dairy, eggs, forest and wood products, horticulture, livestock export, meat and livestock, meat processing, pork, sugar and wool.
The Australian Government expenditure on rural R&D in 201516 was $323million. This expenditure consisted of:
· $279million on rural RDCs, with the largest Australian Government matching payments being made to: grains ($68million); meat ($60million); horticulture ($44million); and dairy ($24million)
· $44million on other rural R&D, including research into fisheries, landcare, pest and weed control as well as rural extension and outreach (figure3).
Figure 3 Rural R&D expenditure by sector, 201516a //
aSource reports individual payments made to some RDCs. The remaining RDCs are grouped together.
Source: DIIS(2016).
National Health and Medical Research Council
The NHMRC is the main funder of clinical, health and other medical research in Australia. It also develops advice for the community, health professionals and governments. The Council seeks to promote the development and maintenance of public and individual health standards in Australia.